Energy industry urges government to expand household support ahead of price cap rise

The body representing energy firms in the United Kingdom has called on the government to intervene with additional assistance for households facing financial hardship. Energy UK stated that persistently high prices have left some consumers requiring emergency support beyond the existing Warm Home Discount. The industry body argued that current bills are unaffordable for millions of people and that a more targeted and agile support scheme is necessary to address the growing crisis.

This call for action comes as the regulator Ofgem prepares to announce the energy price cap for October on Wednesday. The new cap is expected to reach a three-year high, marking a significant increase in costs for consumers. Dhara Vyas, the chief executive of Energy UK, noted that while suppliers are doing their utmost to assist customers, record levels of debt indicate that the current system is failing to provide adequate support. She suggested that a new social discount scheme would create a system that works better for everyone by addressing the specific needs of vulnerable groups.

The financial strain on households is evident in the data reported by Ofgem at the end of last winter, which showed that customers who had fallen behind on their bills owed suppliers a record £4.7bn. Since that time, wholesale energy prices have risen further, a trend attributed to the start of the Iran war in February. Cornwall Insight, an energy consultancy, predicts that the cap on household price rises will increase by 4% when it is announced. This rise will apply to bills during the first half of the coming winter, following a sharper 13% increase in July.

Cornwall Insight indicated that factors beyond the conflict in the Middle East have contributed to the price increases. Heatwaves across Europe have increased demand for power generation to support air conditioning and other cooling systems. The consultancy added that the predicted price rise would outweigh the impact of Prime Minister Andy Burnham’s decision to remove VAT on household electricity bills from October. Currently, individuals receiving means-tested benefits are entitled to a one-off £150 Warm Home Discount over the winter, which is administered by energy suppliers and funded by a levy on all energy users.

Energy UK highlighted that while the Warm Home Discount reaches six million customers, an additional 2.5 million people require help due to medical conditions or draughty homes that lead to higher energy consumption. The body proposed that if the government allows the combination of information regarding customer income, health, and energy consumption, a discount scheme could offer targeted and adjustable support. This approach would allow the system to respond to changing needs and price levels more effectively.

The proposed new scheme would cost £1.9bn, nearly double the cost of the current arrangement, but could provide £450 in support to some households. Energy UK suggested that this new support could continue to be part-funded through bills or shifted entirely onto the taxpayer via government funding. The last time the price cap reached a similar level was in July 2023, which was still below the peaks reached the previous year following Russia’s invasion of Ukraine. During that earlier energy price spike, the Conservative government committed around £40bn of government spending to support households with energy bills.

Adam Scorer, chief executive of National Energy Action, supported the industry’s approach, noting that the Warm Home Discount has risen by only £10 over the last decade. He stated that there is a desperate need for a new approach and that if the government genuinely wants to provide breathing space for people in fuel poverty, it must work with energy companies and charities to design a solution that is fit for purpose.